IMF boosts South Korea's 2026 growth outlook to 2.6% on strong chip exports

The International Monetary Fund (IMF) has significantly upgraded South Korea's economic growth forecast for 2026, projecting a 2.6% expansion. This upward revision marks a substantial increase of 0.7 percentage points from the IMF's April outlook of 1.9%. The improved forecast aligns with earlier projections from the Bank of Korea and the Organisation for Economic Co-operation and Development, placing South Korea's projected growth rate as the highest among advanced economies included in the IMF's report.

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buoyed by strong external demand for semiconductors, which dominates the negative impact of the war.

The primary driver behind this optimistic outlook is the robust performance of South Korea's export sector, particularly in semiconductors and AI-related hardware. The IMF specifically cited "strong external demand for semiconductors" as a key factor, stating that this boom has largely offset the negative economic impacts stemming from the ongoing war between the U.S. and Iran. South Korea was identified as one of the top four net exporters of AI-related hardware, alongside Taiwan, Thailand, and Malaysia.

The report highlighted that South Korea's economy achieved a surprising 7.5% growth rate in the first quarter, more than four times the initial projection. This surge was powered by a semiconductor and AI-hardware export boom, demonstrating the economy's resilience despite a heavy reliance on imported energy from the Middle East. The IMF further forecasts South Korea's growth rate to reach 2.5% in 2027, an increase of 0.4 points from its previous prediction.

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Korea, despite its heavy reliance on imported energy from the Middle East, surprised with a 7.5 percent growth rate, more than four times the 1.8 percent projected in April, powered primarily by a semiconductor and AI-hardware export boom.

Despite the positive outlook for South Korea, the IMF slightly downgraded its global economic growth forecast for 2026 to 3.0%, a decrease of 0.1 points. The report cited ongoing "pressures on the global economy" that are "tilted to the downside," specifically mentioning instability in the Middle East and trade fragmentation as significant risk factors. The IMF also noted the potential for both positive and negative scenarios related to AI investment, with a rapid deployment potentially strengthening growth, while a downward revision of AI-related profitability could lead to a sharp correction in equity valuations, particularly in AI-exporting economies.

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On the one hand, if the recent surge in AI-related investment were to translate more rapidly into broad-based deployment and efficiency gains, medium-term growth could strengthen. On the other hand, expectations regarding AI-related profitability and productivity gains could be revised downward. In such a scenario, investment in technology-intensive sectors could retrench abruptly, and frothy equity valuations, particularly in AI-exporting economies and markets with high concentration in technology firms, could correct sharply.